Prioritizing Growth Over Profits, One Kings Lane Raises $50 Million in Capital

One Kings Lane, which sells home decor at a steep discount online, just raised its most significant round of capital yet.

The $50 million round brings the company’s total raised to date to $117 million. Institutional Venture Partners led the fourth round with existing investors, with Kleiner Perkins Caufield & Byers, Greylock Partners and Tiger Global Management also participating.

Also joining the round was strategic investor Scripps Networks Interactive, which owns TV networks, including HGTV and Food Network. Scripps and One Kings Lane became familiar with each other this winter after One Kings Lane ran its first-ever TV advertising campaign.

One Kings Lane CEO Doug Mack says the funding follows a strong year of growth, which was fueled by aggressive — and expensive — expansion plans in 2012.

Today, the online retailer employs 350 people, including the addition of four new executives to its management team. The growth necessitated getting new offices in San Francisco, where it now occupies 52,000 square feet of the Market Square building, and in Los Angeles and New York. As mentioned above, the company also kicked off a pricey advertising campaign, which cost millions of dollars in the fourth quarter alone.

But, Mack says, all that spending has been offset — at least partially — by top-line revenue growth, allowing it to cut its losses by a third compared to 2011. This year, One Kings Lane is on track to record $200 million in revenue, or double what it achieved last year.

Mack declined to discuss the company’s valuation, although he said it has gone up since the company raised money a year ago. However, one glaring milestone left for the company to achieve is profitability, which he believes could occur in the next year or two when the company hits $400 million in revenue.

Mack said this will be the company’s final round of private capital before going public.

“We weren’t really thinking we’d raise, but the consumer-based IPOs are not doing well, and we wondered if they weren’t doing well, if it would ripple back and affect us,” he said. “Basically, we got proactive because someday we might need it.”

Other e-commerce companies have had no problems raising capital recently, including Wayfair, another home decor site, which raised $36 million; flash sales sites like Zulily, which sells children’s apparel; and Fab.com.

Mack was reminded last month why it’s good to have a little more cash in the bank. During Hurricane Sandy, the One Kings Lane office in New York went dark for a week and a half. The staff had to scramble to take photos and write copy for the site from makeshift offices around town. “It was a good reminder — it can even be an act of God that can take you out,” he said.

Even with the difficulties that Sandy presented, Mack said the company is on track to surpass its goals for this holiday season. This year, consumers went “gangbusters” on Thankgiving, with 50 percent of the site’s visits coming from mobile devices (compared to the high 20 percent range normally).

Sales continued to be strong the week after Thanksgiving, fueled by a big Cyber Monday, to make the company’s best week ever, Mack said. The site isn’t focused on running promotions this holiday since most of its inventory is discounted anyway. Instead, it offered a greater selection, by updating the site twice a day instead of just once on Cyber Monday.

The new funds will go toward hiring more technology talent to help its mobile efforts and data tracking. Mack also plans to continue spending on marketing after seeing a huge return on investment from its TV campaigns, which not only brought new people to its site, but translated to more sales. It will also continue spending on its merchandising team, as it continues to add more product.

Just as the atom bomb was the weapon that was supposed to render war obsolete, the Internet seems like capitalism’s ultimate feat of self-destructive genius, an economic doomsday device rendering it impossible for anyone to ever make a profit off anything again. It’s especially hopeless for those whose work is easily digitized and accessed free of charge.

— Author Tim Kreider on not getting paid for one’s work

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